Special Feature
Financial Overview For the year ending December 2011 Ithaca produced net cash flows of US$103.5 million (2010 US$88.9 million), and profit before tax of US$37.1 million (2010 US$38.0 million). Cash reserves were US$112.1 million (2010: US$201.9 million) and the company had a UK tax allowance pool of US$325 million (2010 $289 million). On 21 March 2012 the UK Government increased the Small Field Allowance (SFA) tax shelter availability from the 32% Supplemental tax charge for future small developments. The size of fields that qualify for full SFA was increased to include all fields with reserves of under 45 mmboe. The tax allowance available to each field has been doubled from approximately US$120 million to US$240 million. This change brings the Stella field under the SFA tax shelter and doubles the relief expected for all other developments including Harrier, Hurricane, Carna, Scolty Area (Scolty, Crathes and Torphins) and South West Heather. In respect of the Greater Stella Area, this amounts to in excess of US$80 million of additional tax-savings net to Ithaca over the expected life of the fields.
Reserves Net Proven and Probable reserves (“2P”) increased approx. 9%, from 46.05 mmboe as at December 31, 2010 to 50.25 mmboe as at December 31, 2011. Net 1P Reserves 26.13 million barrels of oil equivalent (“mmboe”) (2010: 22.30 mmboe). The increase in reserves came mainly from the acquisitions of interests in the Cook field and Challenger Minerals (North Sea) Ltd. Ithaca’s management has hedged well in recent years; entering into swap contracts to sell 768,800 barrels of the Company’s March 2012 - June 2013 forecast production at an average price of $116.07 per Barrel.
74 | www.financial-spread-betting.com | July 2012
The Company also entered into put options, at a market price, for 390,000 barrels of oil at a weighted average oil price floor of $120.24 / bbl for the period May 2012 February 2013 during Q1 2012. Company has locked in a portion of 2012/13 oil production (over 1.1 million barrels) at a weighted average price of approx. US$118 per barrel, thereby securing approximately US$136 million of revenue.
Significant developments in 2012 Takeover In late January 2012 Ithaca issued an RNS stating that they had been approached by an unnamed suitor with a view to a potential takeover. The shares rose quickly to 180p from an undisturbed level around 130p as the market priced in a takeover north of £2 per share. At the end of May 2012, management released a Corporate Update that included the blow to speculators of the stock that discussions had ceased with the initial suitor who was intending to acquire the entire entity and also all the additional potential bidders. The shares promptly fell to around £1.10, despite significant positive corporate developments outside of the takeover. The wording of the RNS by management was interesting: “The Board has concluded that continuing the current process at this time was unlikely to produce a transaction with financial terms that properly reflect the value of the Company, particularly in light of the current volatility in global markets and the short term softening in Brent crude prices. In reaching this decision the Board of Directors has fully considered the Company’s current value, its growth potential, the future value that can be delivered to shareholders and the responses of the third parties with whom discussions have been held.” Our guess is that the market volatility and the softening in oil prices caused one or two of the parties interest to wane and the ‘competitive tension’ that is all important in a bid process was much diminished. Management likely were holding out for a full price relative to recent deals in the region of 220p - 250p, and the remaining party(ies) were playing hardball on price. With this in mind the bidders bluff was called and Ithaca decided to plough their own furrow going forward.